On June 30, 2026, at the first joint review of the United States-Mexico-Canada Agreement, Washington declined to extend the pact, setting the clock ticking.
I agree with your conclusion but think the macro warrants of this piece are a bit weaker than they were presented. Specifically, I think two-way trade in nominal dollars is a bit deceptive:
1. All else equal, it will scale roughly in line with the nominal GDP growth of both countries
2. Secularly, supply chains have become more integrated over borders over the horizon displayed in the chart (so plotting the US with any country, including one not systemically important in our supply chain, would show this trend)
3. I believe the Dallas Fed numbers include the commodity import/export, important because Mexico depends on US refiners to process their crude. That part of the trade surplus / deficit is pretty structurally disconnected from the focus of NAFTA/USMCA
Looking at the GTIS numbers, the conclusions still hold in a weaker form; Mexico was about 10% of the non-commodity total imports and total exports in 1993 and is about 16% / 17% today respectively, nothing to scoff at but a far cry from China which went from 8% to 25% down to 17%. Markets are penciling in a roughly 49% chance it is extended within 2026; the peso and Mexican sovereign spreads are both sanguine; I'd put it as 75% it's extended within a calendar year. Directionally I feel your conclusions are correct but don't think this is the scariest supply chain story out there
Thanks for the comment. These are useful perspectives. I agree: not the scariest supply chain story, but with regimes favoring populist policies, it can become one.
For sure, and the aggregate numbers belie the existential risk for industries like auto assembly. Appreciate you writing this and giving me the nudge to review these numbers
I agree with your conclusion but think the macro warrants of this piece are a bit weaker than they were presented. Specifically, I think two-way trade in nominal dollars is a bit deceptive:
1. All else equal, it will scale roughly in line with the nominal GDP growth of both countries
2. Secularly, supply chains have become more integrated over borders over the horizon displayed in the chart (so plotting the US with any country, including one not systemically important in our supply chain, would show this trend)
3. I believe the Dallas Fed numbers include the commodity import/export, important because Mexico depends on US refiners to process their crude. That part of the trade surplus / deficit is pretty structurally disconnected from the focus of NAFTA/USMCA
Looking at the GTIS numbers, the conclusions still hold in a weaker form; Mexico was about 10% of the non-commodity total imports and total exports in 1993 and is about 16% / 17% today respectively, nothing to scoff at but a far cry from China which went from 8% to 25% down to 17%. Markets are penciling in a roughly 49% chance it is extended within 2026; the peso and Mexican sovereign spreads are both sanguine; I'd put it as 75% it's extended within a calendar year. Directionally I feel your conclusions are correct but don't think this is the scariest supply chain story out there
Thanks for the comment. These are useful perspectives. I agree: not the scariest supply chain story, but with regimes favoring populist policies, it can become one.
For sure, and the aggregate numbers belie the existential risk for industries like auto assembly. Appreciate you writing this and giving me the nudge to review these numbers